Lannister Manufacturing has a target debtequity ratio of .55. Its cost of equity
ID: 2718494 • Letter: L
Question
Lannister Manufacturing has a target debtequity ratio of .55. Its cost of equity is 14 percent, and its cost of debt is 5 percent. If the tax rate is 38 percent, what is the company’s WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Lannister Manufacturing has a target debtequity ratio of .55. Its cost of equity is 14 percent, and its cost of debt is 5 percent. If the tax rate is 38 percent, what is the company’s WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Explanation / Answer
WACC = Weight of Debt*After Tax Cost of Debt + Weight of Equity*Cost of Equity
= 5*0.55/(0.55+1)*(1-0.38) + 14 *1/(0.55 +1) = 10.13%
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